Innovation and Pivots: Further Thinking

April 5, 2012

The other day I blogged about piv­ots, out­lin­ing argu­ments for and against piv­ot­ing. Pivoting is con­tro­ver­sial because there are dif­fer­ent the­o­ries of inno­va­tion, and oppos­ing beliefs about suc­cess fac­tors and likely risks.

Pivoting is con­sid­ered a healthy strate­gic maneu­ver by pro­po­nents of lean star­tups. They see piv­ots as an invalu­able course cor­rec­tion that enables star­tups to recover from poor prod­uct con­cepts, or faulty assump­tions about cus­tomers and buy­ing processes.

A Religious War over Innovation Theory?

This dis­agree­ment boils down to dif­fer­ent philoso­phies about where inno­va­tions should orig­i­nate: with ideas and novel con­cepts, or cus­tomer needs.

Startups: Idea-Driven Innovation

Most star­tups owe their found­ing inspi­ra­tion to a prod­uct vision that the founders want to bring to life. During their for­ma­tive years these are idea-driven busi­nesses. Startups, espe­cially tech star­tups, are the chief exem­plar of idea-driven innovation.

But the prob­lem is, 90% of idea-driven star­tups will fail if they apply prod­uct devel­op­ment, sales and mar­ket­ing approaches orig­i­nally designed for large com­pa­nies. They will run out of cash before they fully under­stand why their busi­ness model isn’t work­ing, why their ideas don’t res­onate with cus­tomers. The fail­ure of this out­moded model is elo­quently described in The Startup Owner’s Manual, using Webvan as the poster child for how not to man­age a startup.

Hence the need for cus­tomer dis­cov­ery and devel­op­ment processes that rec­og­nize the uncer­tain­ties and unknowns that are baked into entre­pre­neur­ial ven­tures. Because star­tups face so many unknowns, they must have grace­ful ways to recover from faulty assump­tions or things that are sim­ply unknow­able in advance.

Hence the pivot. Pivots take place when founders rec­og­nize that their cur­rent assump­tions don’t fit cus­tomer or mar­ket real­i­ties, so they need to adjust their prod­uct con­cept, pric­ing, cus­tomer selec­tion, or go-to-market strategy.

The meth­ods and prac­tices detailed in The Startup Owner’s Manual will help founders increase their chances of suc­cess, accord­ing to entre­pre­neur­ship thought lead­ers Steve Blank and Bob Dorf, the book’s authors. These meth­ods are intended to help founders reduce mission-critical busi­ness risks: customer/market risk, product/market fit, and the need for a repeat­able sales model and a busi­ness model that can be scaled as the com­pany grows.

Outcome-Driven Innovation®

Strategyn has patented an inno­va­tion method they call Outcome-Driven Innovation® or ODI. It is a customer-centered, dis­ci­plined approach to uncov­er­ing new oppor­tu­ni­ties; one that views every­thing through the eyes of the cus­tomer. ODI starts with a rig­or­ous analy­sis of cus­tomer needs, apply­ing a jobs-to-be-done lens to the dis­cov­ery process.

Strategy’s research sug­gests that cus­tomers con­sider some­where between 50 and 150 met­rics when assess­ing how well a prod­uct or ser­vice meets their needs, in the con­text of the job-to-be-done. Companies that under­stand those met­rics and can deliver a value propo­si­tion that sat­is­fies them, will be 5 times more likely to suc­ceed than those that oper­ate under tra­di­tional inno­va­tion the­o­ries, Strategyn claims. (Idea-driven inno­va­tion being one of the the­o­ries that Strategyn says has high fail­ure rates.)

Because of the dis­ci­plined nature of the ODI process, the need for ODI dis­cov­ery and analy­sis to pre­cede prod­uct devel­op­ment, the ODI method is more likely to appeal to estab­lished enter­prises than to star­tups. (How many star­tups do you know that rel­ish dis­ci­plined processes early in their life cycle?)

Read the Books

The good news is, both of these inno­va­tion the­o­ries are well described in books and blogs. Entrepreneurs and inno­va­tors can learn a lot from these mod­els by read­ing the fol­low­ing books, which I highly rec­om­mend: The Startup Owner’s Manual, The Lean Startup; What Customers Want, and Service Innovation. (The lat­ter two describe Outcome-Driven Innovation.)